Digital transformations are not without risk. In fact, this is one of the reasons the risk-averse insurance industry has been so slow to adapt.

Managing that risk is a core part of any legacy modernization project, writes the team at Protiviti. Most importantly, insurers need to reduce threats to customer experience as a result of downtime.

That’s easier said than done, however. Many of the core systems carriers plan to update may be responsible for the customer-facing services that the business relies on. “These types of systems need to be handled with great care and detailed customer service considerations when they are replaced.”

A phased approach is essential if companies are to mitigate risks successfully, says Kris Beevers, founder and CEO at NS1. But so is investing in technologies that reduce the risk of disruption.

APIs and partnerships in the form of digital platforms offer insurers a way to update legacy systems while maintaining uptime and business continuity.

APIs Offer Immediate Wins and Reduce Complexity

API stands for Application Programming Interface. “APIs are snippets of computer code that enable software applications to interact with one another in a common language,” explains Tarmika cofounder Geetha Sreedhar. As a result, they are crucial in building connected insurance companies. Real-time data can be used to provide personalized products for policyholders, improving the customer experience while ensuring their needs are met.

APIs can also be used to mitigate the risks associated with digital transformations, namely downtime and problems with business continuity.

First, APIs can be used to connect front-end applications that improve the customer experience and provide the immediate benefits of transformation without having to do everything at once. When overhauling an insurer’s legacy back-end in its entirety introduces too much risk, insurers should look at customer-facing front-end applications that meet immediate customer expectations first, writes Christopher Tatje, a senior consultant at ISG. These new solutions can be connected to the legacy back-end through middleware interfaces using APIs.

He points to industrial insurer HDI as one insurer that has successfully implemented this kind of middleware strategy. “The company needed the front-end solutions to respond flexibly to the client and ensure security of processes and customer data,” he explains. “It implemented a ‘front-end layer’ that allowed it to decouple the user interface from the rest of the IT infrastructure. Now, the tariff-relevant data from HDI's existing IT systems is passed on to the application via a separate communication layer with precisely matching interfaces.”

The nature of API means insurers don’t have to worry about configuring back-end systems, writes the team at V-Soft Consulting. This enables businesses to gain immediate digital transformation benefits without having to replace legacy systems.

Second, APIs allow IT departments to reduce the need for qualified experts when upgrading legacy systems, according to integration and API platform MuleSoft. “APIs provide a way to effectively to do this, enabling central IT to modernize these legacy systems by abstracting away core data and services from the underlying system complexity. This eliminates skill gaps by enabling non-experts to easily consume data in legacy applications and services.

“Furthermore, by leveraging API policies (specifically, throttling and rate-limiting), legacy systems can be protected from receiving too many requests and breaking down, which increases application uptime and decreases maintenance costs.”

Adopting certain APIs can even help insurers reduce the risk of downtime during the transformation process, says the team at Akana. “An API-driven architecture allows you to perform IT rationalization using a single analytics view at the highest layers of your stack,” they write. “This allows you to uncover redundancies, find areas for cost savings, and ultimately discover technical value drivers within your IT operations.”

Partnerships Increase Speed and Expertise

One of the biggest concerns holding insurers back from upgrading legacy systems is a fear that new technology won’t sync with back-end systems, says Zviki Ben Ishay, cofounder and CEO at engagement platform Lightico. That and the fact that the cost would be astronomical to make it sync.

Partnering with the right digital platform means this need not be the case.

“Before insurers upgrade their core systems, they can adopt customer-facing technology to make claims and sales processes more efficient, fast, and enjoyable for customers and agents alike,” Ben-Ishay writes. “While this doesn’t replace the need for a robust core system, it can be a quicker and more cost-effective way to improve the customer side of operations.”

Partnering with insurtech platforms can significantly speed up the digital transformation process, writes product marketer Dharshan Chandran. “Instead of investing all the resources in the long process of developing new products and services, you can integrate with InsureTechs that already offer the services or experiences your customers need.”

Digital transformation partners can also help insurers identify where their business would benefit from digitization, what the best solutions are and how to implement them, writes the team at Trackmind. “After implementation, that partner can also ensure the solutions stay effective by maintaining systems, monitoring their effectiveness, and upgrading or scaling as needed.”

By outsourcing part or all of the digital transformation process, carriers can focus on the core business, writes the team at DXC Technology. This reduces the likelihood of in-house resources being stretched to breaking point and makes it far easier to carry on as normal while an expert third-party handles specific functionality and system upgrades.

Better still, there’s more opportunity for carriers to take advantage of this strategy than ever before. “Historically, this strategy came with a limited set of options. More recently, however, as systems have become more component based — and Web-based interface points have become more prevalent — outsourcing can be effectively applied to much smaller aspects of the business.”

Insurers looking for digital transformation partners should find one that can provide a suite of solutions, advises the team at Kearney. Working with multiple specialist vendors will only serve to hamper a carrier's digital transformation and ongoing success. “Rather than employing a broad array of IT vendors with a cost focus, companies need to work with trusted digital strategic partners who can help them develop their digital transformation vision while allowing the business to maintain a laser focus on its core capabilities,” they write.

The Dangers of Going it Alone

Some insurers are hesitant to involve third parties of any kind, whether that’s a partner company or an API data feed. The idea is that such a strategy reduces risk. But in reality, attempting a digital transformation on your own is far riskier.

McKinsey consultants Krish Krishnakanthan, Jens Lansing, Björn Münstermann, Peter Braad Olesen, and Ulrike Vogelgesang say the biggest drawbacks of building an in-house platform rather than buying a software package are higher costs and longer timelines.

“This approach can lead to an extended functionality freeze during the programming phase, which poses a core challenge,” they explain. “Furthermore, new solutions pose the risk of being insufficiently innovative. This can be because of lacking creative and appropriately skilled internal talent or large-scale IT project delivery capabilities; projects can also get bogged down in delivering must-have but nondifferentiating features.”

In short, while carriers may have more control and own systems outright by going it alone, the long lead times pose much more risk to business continuity than partnering with a platform.

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